Accounting Alert Quarterly update - Public Benefit Entities - Deloitte
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Accounting Alert
March 2021
Accounting Alert
Quarterly update – Public Benefit Entities
Connect to what’s new in financial reporting for March 2021?
This quarterly update provides a high level overview of the new and revised financial reporting requirements that need to be
considered by public benefit entities (PBEs) using the new suite of PBE Accounting Standards for annual and interim financial reporting
periods ending on 31 March 2021. Information is also included for December 2020 year ends for entities who are still finalising their
financial statements. We have included links to relevant Deloitte publications which provide further detail, where appropriate.
1Entities will need to assess whether they are a PBE or a for-profit entity. Further guidance on determining this is included in Appendix
A of XRB A1 Application of the Accounting Standards Framework (XRB A1). XRB A1 Appendix A was amended in May 2019 to provide clearer
guidance. Some subsidiaries of PBEs may be for-profit entities. These entities should refer to our quarterly alert for for-profit entities here.
PBEs may be either public sector (PS) PBEs or not-for-profit (NFP) PBEs. Refer to Appendix B for the summary of Accounting Standards
Framework for PBEs.
Financial reporting standards update
Due to the importance of the going concern assessment in the Covid-19 environment, the New Zealand Accounting Standards Board
(NZASB) has issued amendments to PBE IPSAS 1 Presentation of Financial Statements which are already effective from annual periods
ending on or after 30 September 2020. In addition, two financial reporting amendments are applicable for financial years and interim
periods ending 31 March 2021. All entities will need to assess the impact of these new amendments and ensure that relevant policies and
functionalities are in place to implement and comply with the changes.
There are also four significant new standards and amendments on the horizon which entities may wish to consider for early adoption,
including PBE FRS 48 Service Performance Reporting, PBE IPSAS 40 PBE Combinations, PBE IPSAS 41 Financial Instruments and PBE IFRS 17
Insurance Contracts (for not-for-profit PBEs only). All Tier 1 entities need to consider the new requirements and appropriate disclosure of
these approved but not yet effective standards.
Deloitte Covid-19 resources
Global Accounting Considerations related to Covid-19
Deloitte Global has a dedicated page which includes news items and resources in connection with COVID-19 developments that highlights
some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19 in preparing their
financial statements.
IFRS in Focus – accounting considerations related to the Coronavirus 2019 Disease
Deloitte’s IFRS in Focus on accounting considerations related to COVID-19 has been regularly updated with changes such as clarifications
on certain areas and new sections to consider (e.g. alternative performance measures). Some sections will also be applicable for PBEs
where the PBE Standards are aligned with IFRS.
Covid-19 video series
A series of webcasts (5 to 10 minutes long) is also available which presents certain key IFRS accounting considerations related to
conditions that may result from the COVID-19 pandemic. Some of these webcasts will also be applicable for PBEs where the PBE Standards
are aligned with IFRS.
Other COVID-19 guidance
Our regulators have issued guidance for entities and their directors in preparing their financial statements and reminders on their
responsibilities during the current economic environment.
Financial Markets Authority (FMA)
The FMA has released key findings from its recent review of financial reporting on areas of interest including significant accounting
judgements and sources of estimation uncertainty, impact of new accounting standards and non-GAAP financial information. The
document published also provides guidance for entities and directors in light of COVID-19 and reiterates FMA’s focus on ensuring that
entities provide meaningful disclosures around COVID-19. Find the document here.
External Reporting Board (XRB)
The XRB has issued four alerts to date as a response to the impact of COVID-19. Refer to the XRB alerts page here.
The first alert covers the likely impact of COVID-19 on audit reports including explanation of the types of audit reports (e.g. modified audit
reports) which may be issued by auditors during the current economic environment.
The second alert (for-profit) and the third alert for Tier 1 and 2 not-for-profit entities such as registered charities highlight the importance
of going concern disclosures in response to the impact of COVID-19 and the nature and extent of the disclosures depending on the entity’s
specific facts and circumstances. In addition, a series of FAQs was issued for not-for-profit Tier 3 entities which may be helpful in their
assessment and reporting on their ability to continue operating.
The XRB’s fourth alert explains in detail the auditors’ reporting of key audit matters and use of emphasis of matter paragraphs in their
audit reports in the current COVID-19 environment.
Refer to the XRB’s dedicated page on “information in response to COVID-19” for other implications on financial reporting and auditing.
International Accounting Standards Board (IASB)
The IASB has issued educational material in relation to IFRS 9 and COVID-19. This document highlights requirements within IFRS 9
Financial Instruments that are relevant to entities in relation to the impact of the pandemic on the entities’ accounting for expected credit
losses. It does not change, remove nor add to, the requirements of IFRS 9.
This educational material may also relevant for PBEs that early adopted PBE IPSAS 41 Financial Instruments or PBE IFRS 9 Financial
Instruments.
2The IASB has recently issued educational material, Going concern – a focus on disclosure. This document brings together the
requirements in IFRS Standards relevant for going concern assessments. It echoes the new specific going concern disclosure requirements
issued by the NZASB which are effective from annual periods ended 30 September 2020. It does not change, remove nor add to, the
requirements of existing IFRS Standards.
International Public Sector Accounting Standards Board (IPSASB)
COVID-19: Relevant IPSAS Accounting Guidance was issued to highlight the accounting implications arising from COVID-19 including
the accounting considerations in relation to Governments’ responses to the pandemic (e.g. economic packages). It does not constitute
an authoritative pronouncement, nor does it intend to amend, or override the requirements of existing International Public Accounting
Standards (IPSASs) or provide further implementation guidance.
While PBE Standards are aligned with the IPSASs issued by the IPSASB, there are specific differences and standards which the NZASB
has not issued in New Zealand. PBEs should always refer to the standards issued by the NZASB in assessing any transactions or other
implications arising from the impact of COVID-19.
What are the new and revised accounting pronouncements for March 2021?
As occurs so often with changes in accounting standards and financial reporting requirements, some of the new or revised
pronouncements may have a substantial impact on particular entities. Therefore, it is important that the pronouncements listed below are
carefully reviewed for any potential impacts or opportunities.
The tables overleaf outline the new and revised pronouncements that are either to be applied for the first time for a 31 March 2021 annual
or interim reporting period, or which may be early adopted at that date1. The footnotes distinguish between mandatory initial application,
and pronouncements which were also mandatory in a previous period. We have also included links to relevant Deloitte publications which
provide further detail, where appropriate.
In the majority of cases, the disclosure requirements of the individual pronouncements listed in the tables below would not be applicable
to half-year financial reports; however, the recognition and measurement requirements would be applied where those pronouncements
have been adopted by the entity.
In addition, disclosure of the application of new and revised accounting pronouncements needs to be carefully considered, along with the
impact of those that are approved but not yet effective. We have outlined some considerations in respect of these in Appendix A.
The information below was updated on 11 March 2021 for developments to that date.
1
Amendments to PBE FRS 46 First-time Adoption of PBE Standards by Entities Previously Applying NZ IFRS and PBE FRS 47 First-time Adoption of PBE Standards by Entities Other Than Those Previously Applying NZ IFRS have
not been fully considered in this publication. First time adopters should consult the latest version of PBE FRS 46 and PBE FRS 47 when preparing their first financial statements in compliance with PBE Standards. The
NZASB has withdrawn PBE FRS 46 and amended PBE FRS 47, which include changing the name to PBE FRS 47 First Time Adoption of PBE Standards effective from periods beginning 1 January 2021.
3Summary of amendments to PBE Accounting Standards
The tables below set out the recent new pronouncements for PS PBEs and NFP PBEs respectively, and whether they are optional or
mandatory for the financial year ended 31 December 2021 and the financial year or interim period ending 31 March 2021. Further
information on each pronouncement can be found in the next section.
Year ending Interim
ending
Effective
New Pronouncement date* Dec 2020 Mar 2021 Mar 2021
PS NFP PS NFP PS NFP
PBE Standards (Tiers 1 and 2)
Going Concern Disclosures (Amendments to PBE IPSAS 1) 30 Sep 2020 M M M M M M
Uncertainty over Income Tax Treatments (Amendments to PBE IAS 12) 1 Jan 2020 M M M M M M
PBE Interest Rate Benchmark Reform (Amendments to PBE IPSAS 41, PBE IFRS 9,
1 Jan 2020 M M M M M M
PBE IPSAS 29 and PBE IPSAS 30)
PBE IPSAS 40 PBE Combinations 1 Jan 2021 O O O O O O
PBE Interest Rate Benchmark Reform – Phase 2 (Amendments to PBE IPSAS 41, PBE
1 Jan 2021 O O O O O O
IFRS 9, PBE IPSAS 29 and PBE PBE IPSAS 30)
2018 Omnibus Amendments to PBE Standards (PBE IPSAS 2) 1 Jan 2021 O O O O O O
PBE FRS 48 Service Performance Reporting 1 Jan 20221 O O O O O O
PBE IFRS 9 Financial Instruments2 1 Jan 2022 O O O O O O
PBE IPSAS 41 Financial Instruments 1 Jan 2022 O O O O O O
PBE IFRS 17 Insurance Contracts 1 Jan 20231 N/A O N/A O N/A O
Amendments to PBE IFRS 17 1 Jan 20231 N/A O N/A O N/A O
Key
O Optional
M Mandatory – first time
M2 – Mandatory in a previous period
* Annual reporting periods beginning on or after, except for Going Concern Disclosures (Amendments to PBE IPSAS 1)
which is effective for annual reporting periods ending on or after 30 September 2020
1
Effective date delayed due to COVID-19
2
Will be superseded by PBE IPSAS 41 but early adoption is still permitted if the date of initial application is before 1 January 2020
4Impact of each new and revised pronouncement
The following tables set out information on the impact of the recent new pronouncements (see key on page 4).
Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
PBE Standards (Tiers 1 and 2)
30 Sep
Going Concern Disclosures (Amendments to PBE IPSAS 1) M M M M M M
2020
The amendments require specific disclosures around the going concern
assumption to help preparers provide relevant and transparent information
to the users. Specific disclosures are required when management is aware, in
making its assessment, of material uncertainties related to events or conditions
that may cast significant doubt upon the entity’s ability to continue as going
concern.
Disclosures of information about significant judgements and assumptions
are required when an entity prepares its financial statements on a going
concern basis, and management is aware of events or conditions that may
cast significant doubt on the entity’s ability to continue as a going concern (but
management has concluded there is no material uncertainty). These disclosures
are required to the extent that this information is not disclosed in accordance
with paragraphs 137 and 140 of PBE IPSAS 1 requiring disclosures on significant
judgements and estimates.
Earlier application of the amendments is permitted for those entities still
finalising their financial statements.
Uncertainty over Income Tax Treatments (Amendments to PBE IAS 12) 1 Jan 2020 M M M M M M
This amendment sets out how to determine the accounting tax position when
there is uncertainty over income tax treatments.
The amendment requires an entity to determine whether uncertain tax
positions are assessed separately or as a group (depending on which approach
gives a better prediction of the resolution of the uncertainty), and assess
whether it is probable that a tax authority will accept an uncertain tax treatment
used, or proposed to be used, by an entity in its income tax filings.
If it is probable a tax authority will accept the treatment, the entity should
determine its accounting tax position consistently with the tax treatment used
or planned to be used in its income tax filings. Otherwise, the entity should
reflect the effect of uncertainty in determining its accounting tax position by
estimating the tax payable (or receivable), using either the most likely amount or
the expected value method.
On transition, an entity may either use full retrospective method or modified
retrospective method without restatement of comparatives. Earlier application
is permitted.
5Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
PBE Interest Rate Benchmark Reform (Amendments to PBE IPSAS 41,
1 Jan 2020 M M M M M M
PBE IFRS 9, PBE IPSAS 29 and PBE IPSAS 30)
The amendments are similar to the recent amendments to NZ IFRS and affect
PBEs that apply the hedge accounting requirements of PBE IPSAS 29 Financial
Instruments: Recognition and Measurement (the current standard) or PBE IPSAS
41/PBE IFRS 9 Financial Instruments (the new standard/s - refer to discussion
below) to hedging relationships directly affected by the interest rate benchmark
reform.
The amendments affect the following areas:
1. The highly probable requirement for cash flow hedges assumes that
for a hedged item that is a forecast transaction, an entity shall determine
whether the forecast transaction is highly probable assuming that the
interest rate benchmark on which the hedged cash flows are based is not
altered as a result of the interest rate benchmark reform.
2. Reclassification of the amount accumulated in the cash flow hedge
reserve - to determine whether the hedged future cash flows are expected
to occur, an entity shall assume that the interest rate benchmark on which
the hedged cash flows are based is not altered as a result of interest rate
benchmark reform.
3. In assessing the economic relationship between the hedged item
and the hedging instruments, an entity shall assume that the interest
rate benchmark on which the hedged cash flows and/or hedged risk are
based, or the interest rate benchmark on which the cash flows of the
hedging instrument are based, are not altered as a result of the interest rate
benchmark reform.
4. In doing the prospective assessment and retrospective assessment
under PBE IPSAS 29, an entity is not required to discontinue a hedging
relationship during the period of uncertainty arising from the interest rate
benchmark reform solely because the actual results of the hedge are not
highly effective, i.e. are outside the range of 80-125% when applying the
restrospective assessment.
5. In designating a component of an item (i.e. benchmark component
of interest rate risk that is affected by the interest rate benchmark
reform) as a hedged item under both PBE IPSAS 41/PBE IFRS 9 and PBE
IPSAS 29, an entity shall apply the specific requirement in PBE IPSAS 41/
PBE IFRS 9 and PBE IPSAS 29 to determine whether the risk component is
separately identifiable, only at the inception of the hedging relationship.
6. An entity shall prospectively cease applying the requirements set out
in 1 to 4 above at the earlier of when the uncertainty arising from interest
rate benchmark reform is no longer present with respect to the timing
and the amount of the interest rate benchmark-based cash flows of the
hedged item and hedged instruments, and when the hedging relationship is
discontinued. For 5 above, the relief will end on termination of the hedging
relationship.
7. PBE IPSAS 30 Financial Instruments: Disclosures requires an entity to disclose
exposure on uncertainty arising from interest benchmark reform, extent of
exposure, how the entity is managing the process to transition to alternative
benchmark rates, significant assumptions or judgements and nominal
amount of the hedging instrument.
The amendments are applied retrospectively to those hedging relationships
that existed at the beginning of the reporting period in which an entity first
applies the amendments or were designated thereafter, and to the gain or loss
recognised in other comprehensive income that existed at the beginning or
the reporting period in which an entity first applies the amendments. Earlier
application is permitted.
6Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
PBE IPSAS 40 PBE Combinations 1 Jan 2021 O O O O O O
The new standard, when applied, supersedes PBE IFRS 3 Business Combinations.
PBE IPSAS 40 has a broader scope than PBE IFRS 3 since it establishes
requirements for accounting for both acquisitions and amalgamations. PBE
combination is the bringing together of separate operations into one public
benefit entity, which might occur by mutual agreement or by compulsion (for
example by legislation).
Identifying a PBE Combination
PBE IPSAS 40 requires an entity to determine whether a transaction or event is
a PBE combination, which requires that the assets and liabilities constitute an
operation. PBE IPSAS 40’s definition of an “operation” is similar to the definition
of a “business” under PBE IFRS 3, which includes three elements: input, process
and output. Similar to PBE IFRS 3, to qualify as an operation, two essential
elements are required – inputs and processes applied to those inputs, which
together are or will be used to create outputs.
Classification of PBE Combination
A PBE combination can be classified as an amalgamation or an acquisition.
• An amalgamation is where no party to a PBE combination gains control
of one or more operations as a result of the combination or if one party
gains control, the economic substance of the PBE combination based on the
evidence relating to the consideration, the decision-making process and other
matters is that of an amalgamation. A “resulting entity” shall account for the
amalgamation by applying the modified pooling of interests method.
• An acquisition is where one party to a PBE combination gains control of
one or more operations as a result of the combination and the economic
substance is not that of an amalgamation. An acquirer shall account for each
acquisition by applying the acquisition method of accounting.
The modified pooling of interests method requires recognition and
measurement of the assets, liabilities and non-controlling interests at their
carrying amounts and recognition and measurement of any other adjustments
(e.g. to align accounting policies) within net assets/equity. An amalgamation
does not give rise to goodwill.
The acquisition method of accounting is consistent with PBE IFRS 3 and requires
recognition and measurement of assets, liabilities and non-controlling interests
at fair values and recognition and measurement of goodwill or gain or loss from
acquisition.
This standard has an effective date for annual periods beginning on or after 1
January 2021. Earlier application is permitted.
PBE Interest Rate Benchmark Reform – Phase 2 (Amendments to PBE
1 Jan 2021 O O O O O O
IPSAS 41, PBE IFRS 9, PBE IPSAS 29 and PBE IPSAS 30)
This is the second part of the two-phase project on interest rate benchmark
reform. Refer to page 6 for the details of the first set of amendments.
These amendments enable PBEs to reflect the effects of transitioning from
benchmark interest rates, such as interbank offer rates (IBORs) to alternative
benchmark interest rates without giving rise to accounting impacts that would
not provide useful information to users of financial statements.
The amendments affect many entities and in particular those with financial
assets or financial liabilities that are subject to interest rate benchmark reform
and those that apply the hedge accounting requirements in PBE IPSAS 41, PBE
IFRS 9 or PBE IPSAS 29 to hedging relationships that are affected by the reform.
PBEs should apply the amendments retrospectively and reinstate the hedge
relationships that were discontinued solely due to changes directly required by
the reform. Early application is permitted.
7Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
2018 Omnibus Amendments to PBE Standards (PBE IPSAS 2) 1 Jan 2021 O O O O O O
The amendments require disclosures that allow users of financial statements
to evaluate changes in liabilities which arise from financing activities. Illustrative
examples for public sector and not-for-profit entities have been included in the
amendments to demonstrate how to meet the objective; namely, to improve
the information provided by entities about their financing activities.
PBE FRS 48 Service Performance Reporting 1 Jan 2022 O O O O O O
This new standard introduces high-level requirements for Tier 1 and Tier 2 PBEs
relating to service performance information.
All NFP PBEs, and those PS PBEs which are legally required to provide service
performance information, must provide the following information:
• the reason for the entity’s existence, what the entity aims to achieve over the
medium to long term (in broad terms), and how it will go about achieving this;
and
• what the entity has done in order to achieve its broader aims and objectives,
as stated above.
The NZASB has issued an explanatory guidance, EG A10 Service Performance
Reporting, to help the Tier 2 PBEs understand the requirements of PBE FRS 48
and think about how these requirements will be met.
In recognition of the impact COVID-19 is having on PBEs, on 13 August 2020, the
NZASB issued 2020 Amendments to PBE FRS 48 which includes deferral of the
effective date by one year from annual reporting periods beginning 1 January
2021 to 1 January 2022. The amendments also include a clarification that
explanations of major variances are only required if PBEs report comparisons of
actual and previously published prospective service performance information.
PBE IFRS 9 Financial Instruments 1 Jan 2022 O O O O O O
PBE IFRS 9 was issued as an interim standard by the NZASB to address
concerns relating to mixed groups and will be superseded by PBE IPSAS
41. Refer discussion on PBE IPSAS 41 for the differences between the two
standards.
PBE IFRS 9 (effective date delayed by one year to 1 January 2022) is available
for early adoption if the date of initial application is before 1 January 2020.
8Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
PBE IPSAS 41 Financial Instruments 1 Jan 2022 O O O O O O
The NZASB has issued PBE IPSAS 41 after the IPSASB issued its own financial
instruments standard. PBE IPSAS 41 will supersede PBE IFRS 9 and PBE IPSAS
29 Financial Instruments: Recognition and Measurement.
PBE IPSAS 41 introduces a new classification and measurement regime for
financial instruments and will need to be carefully considered by each entity.
Some key changes include:
Financial assets
• debt instruments meeting both a ‘management model’ test and a ‘cash flow
characteristics’ test are measured at amortised cost (the use of fair value is
optional in some limited circumstances);
• the new measurement category of ‘fair value through other comprehensive
revenue and expense’ (FVTOCRE) will apply for debt instruments held
within a management model whose objective is achieved both by collecting
contractual cash flows and selling financial assets;
• investments in equity instruments can be designated as FVTOCRE with only
dividends being recognised in surplus or deficit;
• all other instruments (including all derivatives) are measured at fair value with
changes recognised in surplus or deficit;
• the concept of ‘embedded derivatives’ does not apply to financial assets
within the scope of the Standard and the entire instrument must be classified
and measured in accordance with the above guidelines; and
• all equity investments are measured at fair value (including unquoted equity
investments).
Financial liabilities
• PBE IPSAS 29 classification categories of amortised cost and fair value
through surplus or deficit are retained;
• changes in credit risk on liabilities designated as at fair value through surplus
or deficit is recognised in other comprehensive revenue and expense, unless
it creates or increases an accounting mismatch, and is not recycled to surplus
or deficit;
• the meaning of credit risk is clarified to distinguish between asset-specific and
performance credit risk; and
• the cost exemption in PBE IPSAS 29 for derivative liabilities to be settled by
delivery of unquoted equity instruments is eliminated.
Hedge accounting and credit risk on own liabilities
• a broadening of the risks eligible for hedge accounting;
• changes in the way forward contracts and derivative options are accounted
for when in a hedge accounting relationship, which reduces surplus or deficit
volatility;
• the effectiveness test has been replaced with the principle of an “economic
relationship” and retrospective assessment of effectiveness is no longer
required; and
• enhanced disclosures regarding an entity’s risk management activities.
9Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
The expected credit loss impairment model
The expected credit loss impairment model will apply to debt instruments
measured at amortised cost or FVTOCRE, lease receivables, and certain
written loan commitments and financial guarantee contracts. The loan loss
allowance will be for either 12-month expected losses or lifetime expected
losses (the latter applies if credit risk has increased significantly since initial
recognition). The lifetime expected losses or the simplified approach is required
for receivables that result from exchange and non-exchange transactions. A
different approach applies to purchased or originated credit-impaired financial
assets and accounting policy choices apply to lease receivables. Simplifications
on the accounting treatment of credit-impaired short-term receivables are
available. Extensive disclosure requirements have also been added to PBE
IPSAS 30 Financial Instruments: Disclosures.
PBE-specific issues addressed
PBE IPSAS 41 has incorporated PBE-specific differences that currently exist
between the requirements in NZ IAS 39 and PBE IPSAS 29 (e.g. requirements
for concessionary loans and guidance on initial recognition of financial assets
arising from non-exchange transactions). Many of these requirements are
similar except that PBE IPSAS 41 contains guidance on how to distinguish
concessionary loans from originated credit-impaired loans. If a concessionary
loan is also originated credit-impaired, both the credit losses and concessionary
element are recognised as concession.
Alignment to existing PBE Standards has been addressed by the IPSASB in
its own financial instrument standard and is carried by the NZASB into PBE
IPSAS 41 – e.g. there is no PBE Standard-equivalent for NZ IFRS 13 Fair Value
Measurement or NZ IFRS 15 Revenue from Contracts with Customers.
Differences between PBE IPSAS 41 and PBE IFRS 9
The majority of the requirements in PBE IPSAS 41 are identical or almost
identical to the requirements in PBE IFRS 9. However, there are general and
specific differences between the two standards.
PBE IPSAS 41 is more closely based on for-profit entities’ financial instruments
standard compared to PBE IFRS 9 (e.g. PBE IPSAS 41 requires simplified
approach for trade receivables while PBE IFRS 9 provides accounting policy
choices). PBE IPSAS 41 incorporates some of the narrow scope amendments
made to other IFRS Standards relating to financial instruments over recent
years or recent interpretations (e.g. prepayment features with negative
compensation, offsetting financial assets and financial liabilities and
extinguishing financial liabilities with equity instruments).
Included in PBE IPSAS 41 are the transition provisions for those entities that
have early adopted PBE IFRS 9.
Consequential amendments
Consequential amendments affecting a number of standards including
PBE IPSAS 30 can be found in Appendix D of PBE IPSAS 41 and should be
considered. These have been issued with the same effective date as PBE IPSAS
41.
Effective date
PBE IPSAS 41 is effective for annual periods beginning on or after 1 January
2022, with early application permitted.
10Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
PBE IFRS 17 Insurance Contracts 1 Jan 2023 N/A O N/A O N/A O
The NZASB has issued PBE IFRS 17 with a scope modification to limit its
application to Tier 1 and Tier 2 not-for-profit PBEs.
PBE IFRS 17, when applied by not-for-profit PBEs, supersedes PBE IFRS 4
Insurance Contracts. PBE IFRS 17 is closely based on NZ IFRS 17 Insurance
Contracts. The scope of PBE IFRS 17 differs from PBE IFRS 4 because it
introduces:
• a requirement that in order to apply the insurance standard to investment
contracts with discretionary participation features, an entity has to also issue
insurance contracts; and
• an option to apply PBE IPSAS 9 Revenue from Exchange Transactions to
customers to fixed-fee contracts, provided certain criteria are met.
PBE IFRS 17 requires not-for-profit PBEs to identify portfolios of insurance
contracts which are subject to similar risks and managed together. Each
portfolio shall be divided into a minimum of three groups:
• a group of contracts that are onerous at initial recognition, if any;
• a group of contracts that at initial recognition have no significant possibility of
becoming onerous subsequently, if any; and
• a group of the remaining contracts in the portfolio, if any.
A not-for-profit PBE is not permitted to include contracts issued more than one
year apart in the same group. Furthermore, if a portfolio would fall into different
groups only because law or regulation constrains the not-for-profit PBE’s
practical ability to set a different price or level of benefits for policyholders with
different characteristics, the not-for-profit PBE may include those contracts in
the same group.
The standard measures insurance contracts either under the general model or
a simplified version of this called Premium Allocation Approach.
The general model is defined such that at initial recognition an entity shall
measure a group of contracts at the total of:
• the amount of the fulfilment cash flows (“FCF”), which comprise probability-
weighted estimates of future cash flows, an adjustment to reflect the time
value of money (“TVM”) and the financial risks associated with those future
cash flows and a risk adjustment for non-financial risk; and
• the contractual service margin (“CSM”).
11Interim
Year ending
ending
Effective
New Pronouncement Dec 2020 Mar 2021 Mar 2021
date*
PS NFP PS NFP PS NFP
On subsequent measurement, the carrying amount shall be the sum of the
liability for remaining coverage and the liability for incurred claims. The liability
for remaining coverage comprises the FCF related to future services and the
CSM of the group at that date. The liability for incurred claims is measured as
the FCF related to past services allocated to the group at that date.
An entity may simplify the measurement of the liability for remaining coverage
of a group of insurance contracts using the premium allocation approach on the
condition that, at initial recognition, the entity reasonably expects that doing
so would produce a reasonable approximation of the general model, or the
coverage period of each contract in the group is one year or less.
The new standard may also result in changes to presentation in the statement
of financial performance.
A not-for-profit PBE shall apply the standard retrospectively unless
impracticable, in which case entities have the option of using either the
modified retrospective approach or the fair value approach.
At the date of initial application of the standard, those not-for-profit PBEs
already applying PBE IPSAS 41 may retrospectively re-designate and reclassify
financial assets held in respect of activities connected with contracts within the
scope of the standard.
On 13 August, the NZASB issued Amendments to PBE IFRS 17 which includes
deferral of the effective date by one year from annual periods beginning on or
after 1 January 2022 to 1 January 2023. Early application is permitted for entities
that apply PBE IPSAS 41 on or before the date of initial application of PBE IFRS
17. Other amendments to ensure alignment of PBE IFRS 17 with NZ IFRS 17 are
discussed below.
Amendments to PBE IFRS 17 1 Jan 2023 N/A O N/A O N/A O
The other amendments to PBE IFRS 17 include the following:
• Scope exclusion for credit card contracts and similar contracts and optional
scope exclusion for loan contracts with insurance coverage limited to the loan
amount;
• Recognition of insurance acquisition cash flows relating to expected contract
renewals, including guidance for insurance acquisition cash flows recognised
in a PBE combination;
• Application of PBE IFRS 17 in interim financial statements;
• Allocation of CSM attributable to investment-return service and investment-
related service;
• Risk mitigation option using instruments other than derivatives;
• Recovery of losses from underlying insurance contracts through reinsurance
contracts held;
• Presentation in the statement of financial position;
• Transition issues: classification of contracts acquired in their settlement
period and guidance on the restatement of the risk mitigation option applied
in prior periods; and
• Minor application issues.
12Appendix A – Shedding light on the disclosures required
PBE Standards require disclosures in relation to all the new or revised Standards and Interpretations that have had or may have a material impact
on the annual financial report of the entity, whether they have been adopted or not. The requirements for interim financial reports are less
onerous but must still be considered.
The disclosure requirements surrounding new or revised accounting pronouncements are specified by:
• for annual reporting periods – PBE IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors
• for interim reporting periods – PBE IAS 34 Interim Financial Reporting.
Entities reporting under RDR (Tier 2 entities) are permitted exemptions from certain disclosures as noted below.
What disclosures are required?
Applicability of new or Summary of disclosures required
revised pronouncement Annual financial report Interim financial report
Initial mandatory or voluntary The relevant pronouncement, the nature of the change in The nature and effect of any change in
application of a new or accounting policy, details of any transitional provisions, line-by- accounting policy compared with the most
revised pronouncement line analysis of the effect of the change in policy on the financial recent annual financial report.
statements and the impacts on earnings per share.
(PBE IAS 34.16A(a))
Tier 2 entities would not need to disclose details of transitional
PBE IAS 34 does not specify the level of
provisions.
detail of the disclosures required, and
(PBE IPSAS 3.33) accordingly the level of detail may be less
than is presented in an annual financial
In addition, each standard may have specific transitional
report in accordance with PBE IPSAS 3.
provisions which the entity needs to comply.
However, best practice might suggest that
When initial application has not had a material impact on the the requirements of PBE IPSAS 3 be used
financial statements (and is also not expected to have a material as a guide.
impact in future periods), an entity may wish to include a generic
disclosure such as:
“All mandatory Standards, Amendments and Interpretations have
been adopted in the current year. None had a material impact on
these financial statements.”
Pronouncement on issue but The financial report must disclose which pronouncements have The impacts of new or revised accounting
not adopted been issued but not adopted in the financial report, when the pronouncements that have not been early
pronouncements have mandatory application, when those adopted are not explicitly required to
pronouncements are going to be applied by the entity and the be disclosed in interim financial reports.
possible impact on the entity’s financial report (where known or Entities should consider making additional
reasonably estimable). disclosures where the effects of these
pronouncements are expected to be
The tables within the body of this update could be reviewed to
material and those effects have not been
identify such pronouncements for periods ending 30 September
previously disclosed in the prior annual
2020 or 31 December 2020 (updated to 10 December 2020).
financial report.
When initial application is genuinely not expected to have a
Tier 2 entities are exempt from these
material impact on the financial statements, an entity may wish to
disclosures in an annual financial report,
include a generic disclosure such as:
and accordingly would also be exempt at
“There are a number of Standards, Amendments and Interpretations the interim period.
which have been approved but are not yet effective. The Company
expects to adopt these when they become mandatory. None are
expected to result in a material impact on the Company’s financial
statements.”
Tier 2 entities are exempt from these disclosures.
(PBE IPSAS 3.35-36)
Deciding on the early adoption of Interpretations
Interpretations that merely interpret the requirements of existing Standards are often considered best practice and so would ordinarily be
adopted at an entity’s next reporting date or at the mandatory adoption date.
Other Interpretations that effectively introduce new recognition and measurement requirements not explicitly covered under existing Standards
might not ordinarily be early adopted, particularly where they change established industry practice and/or require substantial effort to implement.
Accordingly, where an Interpretation is on issue but is not yet mandatory, entities should carefully consider the requirements of each
Interpretation and its potential impacts when making a decision whether early adoption is appropriate.
13Appendix B - The New Zealand Accounting Standards Framework
The Accounting Standards Framework is a two sector (for-profit and PBE), multi-tiered Framework. This approach has been adopted in order to
meet the differing information needs of each sector’s users of financial statements. The framework for PBEs is based on International Public
Sector Accounting Standards (IPSAS).
XRB A1 Application of the Accounting Standards Framework sets out the tiers for reporting, the standards that apply to each tier and the
requirements for transitioning between tiers. Entities will need to carefully consider which tier applies.
2019 Amendments to XRB A1 Appendix A was issued to improve the guidance for determining whether an entity is a for-profit or PBE. The
amendments include clarifications to the guidance on the definition of a PBE, new indicators and merging of existing indicators to be considered
in determining whether an entity is a PBE, paragraphs on conflicting indicators to explain how to use professional judgement, and revised and new
illustrative examples.
The following flowchart summarises which suite of standards applies:
Is the entity a public benefit entity (PBE)?
"A reporting entity whose primary objective is to provide goods or services for community or
social benefit and where any equity has been provided with a view to supporting that primary
objective rather than for a financial return to equity holders."
No Yes
Is the entity in the public sector?
i.e. the PBE is a public entity as defined in the Public Audit
Act 2001 or an Office of Parliament
Yes No
PBE Accounting Standards
For-profit accounting PBE Accounting
(with limited modification for
standards Standards
not-for-profit PBEs)
The Accounting Standards Framework for PBEs consists of the following suites of standards:
Accounting Standards Framework for Public Benefit Entities
Public sector PBEs Not-for-profit PBEs
PBE Standards PBE Standards
Tier 1 Public accountability1, or Public accountability1, or
Large (expenses2 > $30m) Large (expenses2 > $30m)
PBE Standards RDR PBE Standards RDR
Tier 2 Non-publicly accountable and non-large Non-publicly accountable and non-large
Elect to be in Tier 2 Elect to be in Tier 2
Simple Format (Accrual) (PS) Simple Format (Accrual) (NFP)
Tier 3 Non-publicly accountable & expenses2 ≤ $2 million Non-publicly accountable and expenses2 ≤ $2 million
Elect to be in Tier 3 Elect to be in Tier 3
Simple Format (Cash) (PS) 3
Simple Format (Cash) (NFP)3
Entities allowed by law to use cash accounting Entities allowed by law to use cash accounting
Tier 4
Elect to be in Tier 4 Elect to be in Tier 4
Non-GAAP standard Non-GAAP standard
141
Definition of ‘public accountability’:
• Entities that meet the International Accounting Standards Board’s (IASB) definition of public accountability:
• entities that have debt or equity instruments that are traded, or that will be traded, in a public market; or
• entities that hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.
• Entities deemed to be publicly accountable. An entity would be deemed to be publicly accountable in the New Zealand context if:
• it is an FMC reporting entity or a class of FMC reporting entities that is considered by the FMA to have a higher level of public accountability than other FMC
reporting entities under section 461K of the Financial Markets Conduct Act 2013 (FMCA 2013); or
• it is an FMC reporting entity or class of FMC reporting entities that is considered by the FMA to have a higher level of public accountability by a notice issued
by the Financial Markets Authority (FMA) under section 461L(1)(a) of the FMCA 2013; or
• it is an issuer under the transitional provisions of the Financial Reporting Act 2013.
For information on which entities the FMA has designated as having ‘higher or lower public accountability’ refer to the link:
https://www.fma.govt.nz/compliance/exemptions/financial-reporting-exemption-information/#accountability
2
‘Expenses’ are the total expenses (including losses and grant expenses) recognised and measured in accordance with the relevant tier’s standards.
3
In order for an entity to be able to report under Tier 4 PBE Accounting Standards, an entity must, among other requirements, meet the legislative size threshold
to be a “specified not-for-profit entity”. An amendment to XRB A1 (effective for annual periods beginning on or after 1 January 2018, with early application
permitted) clarifies that when applying the legislative size threshold entities must consider combined total operating payments of the entity and all its
controlled entities.
The above Framework applies when an entity is required to comply with NZ GAAP or a non-GAAP Standard. Requirements to comply with
GAAP or a non-GAAP Standard are specified in legislation but may be included in other arrangements (e.g. contracts).
The XRB’s website reflects the multiple sets of accounting standards that are available, so check you are using the right version. You can
find the PS PBE standards here and the NFP PBE standards here.
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